Oil Prices Pare Gains as Lebanon and Israel Announce Peace Talks

Oil Prices Par Back Gains Amid Middle East Ceasefire Uncertainty

Oil prices pared gains to rise about 1% on Thursday, after Israel announced it would start direct negotiations with Lebanon as soon as possible. The move came after doubts over the durability of a two-week Middle East ceasefire raised concerns about continued restrictions on energy flows through the Strait of Hormuz, sending prices up more than 5% earlier in the session.

Brent crude futures were up 90 cents, or 1% at $95.65 a barrel at 12:58 p.m. ET (1658 GMT), easing from a high of $99.50 earlier in the session. U.S. West Texas Intermediate (WTI) crude also pared gains, rising $3 or 3.2% at $97.39, after hitting a session high of $102.70. Both benchmarks fell below $100 per barrel in the previous trading session, with WTI recording its biggest decline since April 2020, on optimism that the ceasefire would result in a reopening of the strait.

However, Israel's decision to bomb more targets in Lebanon on Thursday put the ceasefire in jeopardy after its biggest attacks of the war on its neighbor killed more than 250 people and threatened to torpedo the truce from the outset. Questions also lingered over the effectiveness of the ceasefire as ship traffic through the Strait of Hormuz fell to well below 10% of normal volumes on Thursday after Iran asserted control by warning vessels to remain within its territorial waters and prices for some physical oil grades hit fresh all-time highs.

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The Hormuz waterway connects supply from Gulf producers such as Iraq, Saudi Arabia, Kuwait, and Qatar to global markets, and typically carries about 20% of global oil and gas supply. Despite the uncertainty, crude futures are taking back some of Wednesday's losses as the Strait of Hormuz remains with just a small fraction of traffic, much less than the market anticipated.

Even if shipments resume, the risks won't disappear overnight, according to Susannah Streeter, chief investment strategist at Wealth Club. Tankers may be forced to navigate mined waters and a heightened military presence, all of which will keep insurance premiums high and freight costs elevated. Shippers on Wednesday said they needed clarity on terms of the ceasefire before resuming transit through the Strait of Hormuz.

Regional oil facilities remain under threat, with Iran striking sites in nearby countries after the ceasefire, including a pipeline in Saudi Arabia that has been used to bypass the blockaded waterway, according to an oil industry source. Crude loadings at Saudi Arabia's Red Sea port of Yanbu have continued despite an Iranian attack on Wednesday on the country's East-West Pipeline.

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The ceasefire led Goldman Sachs to trim its second-quarter 2026 forecasts for Brent and U.S. crude to $90 and $87 a barrel, respectively, from previous forecasts that Brent and West Texas Intermediate (WTI) oil prices would average $99 and $91 a barrel, respectively.